14 Oct 2013

IMF warns US default could spark recession

5:52 pm on 14 October 2013

The head of the International Monetary Fund has warned that a United States default could tip the world into recession.

In a television interview screened in America, Christine Lagarde said a default would result in "massive disruption the world over".

The US Treasury will start to run short of funds on Thursday if no agreement is reached for it to raise its debt limit.

Democratic and Republican leaders in the Senate held direct talks for the first time in weeks on Saturday, the BBC reports. However, correspondents says there is little sign of any breakthrough.

The president of the World Bank, Jim Yong Kim, has also expressed his concern over the situation, warning the US is just "days away from a very dangerous moment" because of the government's borrowing crisis.

Mr Kim urged US policymakers to reach a deal to raise the government's debt ceiling before Thursday's deadline. He warned this could be a "disastrous event" for the world.

US Senate negotiations over the fiscal crisis have shown signs of progress, but there are no guarantees the federal government shutdown is about to end or that a historic debt default will be avoided, Reuters reports.

Senate Majority Leader Harry Reid and Republican leader Mitch McConnell held talks that Senator Reid later called substantive, but he did not provide details.

His remarks gave some hope that Congress soon might pass legislation to fund the government - in shutdown mode since 1 October - and raise its borrowing authority.